After a solid Q4 2023, home-based care transactions dropped significantly in Q1 2024.
Home health, home care and hospice saw just 13 total deals in the first quarter, representing a low point not seen in years.
The breakdown was split evenly across the three service lines, with six home health care deals, seven home care deals and four hospice deals. (Note: While this appears to be 17 transactions, some transactions include more than one service line.)
The low deal volume can be attributed to many factors, including:
A reversion to the mean after a historically strong period of deals from late 2020 through 2022
Regulatory uncertainty
The current debt market
No service line (except perhaps private pay home care) has been immune to regulatory pressure. Home health’s proposed rule, due in June, almost always creates a level of uncertainty. Today it includes the looming ~$3.5 billion recoupment from CMS’ perceived overpayments in the early years of PDGM, which coincided with the COVID outbreak. Medicaid HCBS has had the proposed 80-20 rule (which was finalized on April 22) to deal with, and hospice’s enhanced oversight has made buyers and their lenders more cautious than ever about post-closing audit and review activity and resulting clawback risk.
Then there’s the Fed and interest rates. With inflation numbers remaining stubbornly high, optimism around a mid-year rate cut has dwindled.
“Deal volume is the lowest we’ve seen in years,” says Mertz. “But the reality is, and I’ve been doing home-based care M&A for 17 years, valuations remain strong. We’re not quite at the 2020-2022 levels, but I don’t think we’ll see those numbers again any time soon.” Health care services deals have historically traded between 5-7x EBITDA, however many home-based care companies continue to sell for higher than that, buoyed by the public companies, who are still trading at multiples in the mid-teens and higher.
Home Health M&A
The underlying motivation to invest remains strong. Private equity and the public market institutional investors understand the value home health provides to the healthcare system as a whole. In today’s value-based care movement, many believe skilled home health remains key to reducing overall costs.
But there are fewer sellers out there. And fewer that buyers are interested in.
“There’s just a lack of quality agencies going to market,” says Mertz.
Plus, home health providers and others are still waiting for the market to recover. While soon-to-be sellers are unlikely to match the multiples sellers received in 2020 - 2022, many are waiting for a rebound.
“Deals are harder to close these days, and buyers have gotten more disciplined,” says Mertz. “Fewer buyers are willing and able to pay a premium right now, and if they do, it has to be the right deal for them and their strategy, with little transition risk.”
In the quarter, some of the noteworthy home health deals included:
The Dallas-based and Cimmaron Healthcare Capital-backed Frontpoint Health’s acquisition of High Plains Senior Care Hospice, a home health and hospice provider based in Texas.
Nautic Partners’ acquisition of Angels of Care Pediatric Home Health from Varsity Healthcare Partners.
Lorient Capital-backed PurposeCare’s acquisition of Michiana Home Care.
The Pennant Group (Nasdaq: PNTG) also entered into a joint venture with John Muir Health.
Two things to note for home health care and for the other service lines: more first-quarter deals will likely be reported in the coming weeks; and deal activity generally picks up toward year end.
Home Care M&A
While home care dealmaking has likely been slowed by the looming Medicaid Access rule, Q1 brought a big deal in the private-pay franchise world, with Waud Capital acquiring Senior Helpers from Advocate Health.
“We are very excited for our franchisee partners, teammates, caregivers and clients,” Peter Ross, CEO and co-founder of Senior Helpers, said in a statement. “The need for high-quality, in-home senior care has never been greater. We see opportunities to enhance our suite of senior services as part of the next phase of the company’s growth. Waud Capital brings deep expertise in supporting and successfully growing healthcare companies, a set of similar core values, and a shared vision for the future.”
Senior Helpers is just the latest large home care franchise to be acquired. Toward the end of last year, The Halifax Group also acquired Comfort Keepers from Sodexo.
Other notable deals from the home care world in the first quarter included:
Capital Alignment Partners’ formation of Avenues Home Care.
PurposeCare’s acquisition of Illinois-based A-Abiding Care.
Pillar Health Group’s acquisition of Grace Unlimited.
Hospice M&A
Hospice dealmaking has slowed considerably of late, primarily due to increased regulatory scrutiny. “Generally speaking, investors still love hospice. But increased regulatory oversight has made it harder for them to find the right deal to sink their teeth into,” Mertz said. “Fear of audits and resulting clawbacks have caused more hospice deals to fail diligence over the past 12 months than any period I can remember. Owners thinking about a sale should consider performing a billing audit, which can be done relatively inexpensively and may save them from having to suspend a sale process.”
This increased scrutiny, and investors’ preference for strong cash flow have dampened deal activity. Many hospices that sold over the past few years likely wouldn’t command those same premiums today, simply because the cash flow isn’t there.
To be clear, investors still love hospice. Buyer demand remains high. Regulators have taken a ‘if it ain’t broke’ position with the industry over the years, in terms of reimbursement, which is rare in healthcare services. And a mostly favorable proposed rule, with a 2.6% overall increase in 2025, along with the elimination of VBID has only helped reaffirm that interest. Transaction volume is driven primarily by a scarcity of quality opportunities.
Of the notable deals in the quarter:
Kaltroco-backed New Day Healthcare’s acquisition of Compassion Hospice.
Another PurposeCare deal, this time for Queen City Skilled Care, based in Cincinnati.
Legacy Care Partners acquired Superior Hospice & Home Health.
On the overall deal market, “It’s hard to predict what transaction volume will look like over the next few quarters,” added Mertz. “Buyers remain hungry for quality deals, but the standards around quality have changed, driven by regulatory pressures and the current debt environment.”
If you are interested, you can also download the Q1 2024 Home-Based Care M&A Report via the following link:
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